Germany is getting hit with the nasty combination of deflation and higher energy costs as it follows California’s lead in shifting to renewable energy. Although other factors may be contributing to its economic decline, Germany’s transition from coal and nuclear energy to wind and solar renewable energy sources is forcing industries and consumers to pay substantially higher prices.
With stagflation encouraging German companies to relocate to the U.S. for more favorable energy costs, California, with even higher energy costs will not be attracting any German company jobs.
Just like California, Germany has adopted the United Nations’ Environmental Programme (UNEP) goals under Agenda 21 to create a world in the next 30 years where all decision making will be controlled by environmental, social and governance policies (ESG).
The most important initiative for Germany under this scheme has been to forsake market forces and set an annual consumer tariff to guarantee high returns for renewable energy producers. The Energiewende energy transition program since 2010 has already cost $393 billion and costs are estimated to reach $760 billion by 2022.
The subsidies associated with Germany’s Renewable Energy Act have driven up solar and wind power as a percentage of electrical generation to 27% in 2014. As “renewable” production has risen, the taxpayer subsidies jumped from $9 billion in 2010 to $27 billion in 2014. Yet the consumer tariff, which also acts like a tax, has more than tripled, from about 2.1 cents per kilowatt-hour in 2010 to 7 cents in 2014.
Germany has protected some of its businesses from the full brunt of the shift by introducing tax and levy exemptions for power-intensive industries, such as the paper, aluminum, steel and cement sectors, which make up about 40% of overall energy use. But for industries not on this list, energy taxes and levies are now the highest in Europe.
A government-commissioned study released in 2014 found that Germans now pay the second highest overall energy costs in the 28 nation European Union, behind only Denmark. Due to the expansion of renewables, electric costs for a typical medium-sized industrial company jumped by over 60% in the last five years. As a result, German manufacturers now pay 11.8 cents per kilowatt-hour versus an EU average of 9.5 cents.
Stratfor Global Intelligence reports that a number of German manufacturing companies have relocated to the United States, where the average energy cost for commercial and industrial users averages 6.7 cents per kilo-watt hour. According to Stratfor, many German companies are considering the move to escape green tariffs and subsidies.
The state at the top of the list for German manufacturers seeking favorable energy costs is Texas, where an equivalent commercial or industrial energy user pays just 6.1 cents per kilo-watt hour, approximately a 50% savings over Germany.
The state at the bottom of the list for German manufacturers concerned about energy costs to consider as their new home is California, where commercial and industrial energy costs are the highest electrical rates in the continental U.S. at 11.9 cents per kilo-watt hour. Despite this jobs killer, California Governor Jerry Brown has mandated a doubling down on renewable energy from 18.8% of power generation to 33% over the next five years.
The shift to green energy was politically popular at first in both California and Germany. But as both Germany and California’s economy are deflated as energy costs soar, job destruction may hammer renewables political support.